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Global employee termination law: the Netherlands

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Termination

NoticeAre employers required to give notice of termination?

Yes. The Dutch dismissal rules are described in detail below, given their specific nature and complexity compared to comparable laws in other jurisdictions.

At the end of 2012, the Dutch government and Dutch social partners (trade unions and employers’ associations) agreed several major changes to employment/dismissal laws. The Employment and Security Act is being implemented in three phases: on January 1 2015, July 1 2015 and January 1 2016. The changes effective from the first two dates are described below. New rules are also being introduced in 2016 to relax the protection of employees who continue working beyond pensionable age.

Among other things, since 2015 employers can no longer choose to dismiss employees on indefinite employment agreements either through court proceedings or through a dismissal permit; appeal (to the high court and the Supreme Court) is now possible in all dismissal cases. As a rule, dismissed employees are also legally entitled to a ‘transitional allowance’ (which can be regarded as constituting a statutory entitlement to a severance payment).

Termination of fixed-term employment agreements on the expiry of the agreed term is thus fairly straightforward, but the new legislation has also introduced several relevant changes in this respect. For example the use of trial periods and the use of non-compete clauses in fixed-term contracts has been restricted, and employers are now obliged to notify the employee in a timely fashion as to whether the contract wull be renewed. In addition, the use of successive fixed-term contracts has been restricted further: fixed-term contracts will become indefinite either after two years of using fixed-term contracts or as soon as a fourth contract is agreed. The only way to prevent fixed-term contracts from becoming permanent contracts is to maintain a mandatory ‘non-use’ period of at least six months between two fixed-term contracts.

Under the new rules, an indefinite employment agreement can be terminated by employers in the following ways:

mutual consent confirmed in a written termination agreement;

court order (rescission);

notice of termination without the employee’s consent and after having obtained a permit to give such notice; or

summary/instant dismissal in case of an urgent reason (eg, theft or fraud).

Termination by mutual consent
The employer and employee are free to reach an amicable settlement at any time, which is then laid down in a settlement agreement between the parties. This will confirm that the employment agreement is terminated by mutual consent with effect from a certain date and on the initiative of the employer, in order to safeguard social security entitlements for the employee (if any) insofar as possible.

A settlement agreement usually includes a number of issues in addition to a specific termination date and severance payment, such as bonus entitlement, holiday entitlement and garden leave.

In practice, employers usually offer a settlement agreement before unilateral dismissal (eg, rescission by court order) is pursued. Should the parties fail to reach agreement, a settlement agreement can also be reached at a later stage (eg, at the time of a court hearing).

As from July 1 2015, an employee who has entered into a settlement agreement can revoke his or her consent to that agreement during a mandatory two-week cooling-off period. The employer must notify him or her of this right in advance. Failure to do so results in extension of the cooling-off period to three weeks.

Rescission by court order
The employer may request a court to rescind the employment agreement where a reasonable ground for termination applies.

Performance-related issues (eg, underperformance) constitute reasonable grounds for termination. Dutch law now states explicitly that the employer must first have given the employee timely notice of such underperformance and sufficient opportunity to improve his or her performance.

In the rescission request, the employer must set out its case for dismissal. The employee will be given the opportunity to defend himself or herself, both in writing and during the court session.

The court may refuse to rescind the employment agreement if it is not convinced of the employer’s case (eg, if the employee has not been given a genuine chance to improve his or her performance). Should the court honour the request (usually within eight weeks of the request being filed), it will determine a termination date and a transitional allowance (see below). In light of EU Regulation 44/2001, an employer cannot request a Dutch court to rescind the employment agreement if the employee lives abroad.

The employee can also request rescission of the employment agreement, although such requests are fairly uncommon.

Termination by giving notice with dismissal permit
The employer may request a dismissal permit from the semi-governmental Employee Insurance Schemes Implementing Body (UWV) either for economic reasons or following two years of continued illness.

As in the court route described above, the employer must set out its case for dismissal, and the employee will be given ample opportunity to submit a defence (in writing, in principle, without a hearing).

As in the court route, the UWV may refuse to grant a dismissal permit if it is not convinced of the employer’s case. This decision can be appealed before the court; likewise, if the UWV grants the requested dismissal permit, the employee can appeal to the court in an effort to restore the employment agreement. Both court decisions are subject to further appeal.

Only if the UWV honours the request for a dismissal permit (usually within eight weeks of the permit request being filed), the employer can give notice to the employee. The termination date depends on the applicable notice period (if this employer does not intend to observe this, payment in lieu is required). The time spent on the UWV proceedings may be deducted from the notice period, provided that the remaining notice period will equal at least one month.

Prohibitions against giving notice may apply which could potentially prevent the use of a successfully obtained dismissal permit. Such prohibitions apply, for example, to pregnant employees, ill employees during the first two years of illness, employees in military service and employees who are members of a works council.

Financial compensation in case of dismissals under Dutch law
With effect from July 1 2015, dismissed employees may be eligible for two types of financial compensation under Dutch law (in addition to compensation if the notice period is not observed).

A statutory transitional allowance (a statutory severance payment) was introduced into Dutch law for the first time on July 1 2015. The employer must pay the transitional allowance to the employee if:

the employer has given notice of termination (with or without the employee’s consent);

the employment agreement has been rescinded by the court at the employer’s request;

a fixed-term contract has not been renewed at the initiative of the employer; or

the employee has taken the initiative for the termination (eg, by requesting rescission or giving notice of termination) due to serious misconduct by the employer (eg, sexual harassment, discrimination).

The transitional allowance is calculated as follows in relation to employees below the age of 50:

one-sixth of the employee’s monthly salary for every six months of service for the first 10 years of service (ie, one-third of the employee’s salary for every full year of service for the first 10 years); and

one-quarter of the employee’s monthly salary for every six months thereafter (ie, one-half of the employee’s monthly salary for every full year of service thereafter).

For employees aged 50 and above with 10 or more years of service, every six months of service after the age of 50 counts for one-half of the employee’s monthly salary (ie, a full month for every full service year thereafter); these employees are thus eligible for a higher transitional allowance compared to their younger colleagues or colleagues with under 10 years of service.

The transitional allowance is paid only to employees (aged 18 or over) who have been employed by the employer for at least two years. It is capped at €75,000 gross or one year’s salary, whichever is greater.

Several exceptions apply, including in relation to small companies (ie, with fewer than 25 employees) in specific circumstances and companies in financial difficulties. In addition, the transitional allowance need not be paid if the employee can be seriously blamed for the dismissal.

The court may also award an employee an additional financial compensation at its discretion, but only under very specific and exceptional circumstances – essentially, in case of gross misconduct by the employer, such as sexual harassment or discrimination.

Summary dismissal
Either party to the employment agreement may face circumstances in which the employment relationship could not reasonably be expected to continue (‘urgent reasons’). If these circumstances are the fault of the employee, the employer can terminate the employment agreement with immediate effect. Likewise, if these circumstances are the fault of the employer, the employee can terminate the employment agreement with immediate effect.

Dutch law sets forth a number of examples of ‘urgent reasons’, such as gross negligence in the performance of duties, disclosure of trade or professional secrets, theft, fraud, embezzlement or (other) crimes involving breach of trust. However, only the competent court can determine whether the facts of any given case constitute urgent reasons justifying immediate termination.

RedundanciesWhat are the rules that govern redundancy procedures?

In addition, if an employer intends to terminate at least 20 employment agreements within a three-month period, specific provisions apply under Dutch law which trigger consultation, notification and information obligations towards the works council (if any), trade unions and the Employee Insurance Schemes Implementing Body.

Non-compliance with these obligations may cause notice given by the employer or executed settlement agreements to become voidable. The provisions aim to give the employer and the trade unions the opportunity to negotiate a social plan, although there is generally no legal obligation to reach agreement on such a plan.

Are there particular rules for collective redundancies/mass layoffs?

Yes – see above.

ProtectionsWhat protections do employees have on dismissal?

Under Dutch dismissal laws, employment cannot be terminated ‘at will’. In addition, there must always be substaniated, reasonable grounds for any dismissal.

Prohibitions against giving notice may apply which could potentially prevent the use of a successfully obtained dismissal permit. Such prohibitions apply, for example, to pregnant employees, ill employees during the first two years of illness, employees in military service and employees who are members of a works council.

Compare jurisdictions: Employment & Labor: North America

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